Signing a listing agreement with a real estate agent is a major commitment.
You’re trusting that agent or broker to have your best interests when selling your property.
While great real estate agents and brokers do exist, there are ones who are experts at using the listing contract against you.
This almost always happens because the seller doesn’t really know what they’re signing.
They just assume their agent or broker is trustworthy and sign wherever they’re told.
But here’s the thing…
A listing agreement is a legally binding contract between you – the homeowner – and the real estate brokerage you hire to sell your property.
Not knowing what this contract says can backfire on you.
I’m going to help you avoid that.
The goal?
For you to have peace of mind when executing the contract with your realtor.
In order to do that, we’re going to discuss the three most important things you need to know before signing a listing agreement.
Let’s get started.
Different types of listing agreements
There are several types of listing agreements a seller can sign with a real estate agent to sell a property.
Each of these defines the seller and realtor relationship in a different way and can have a distinct impact on the sale of your property.
This is why it’s important to know about the different types of listing agreements – before signing.
Let’s go through the four agreements that are most commonly used.
Exclusive right to sell listing
The exclusive right to sell listing agreement gives a real estate agent (and their brokerage) exclusivity to sell a property.
This means that a seller cannot hire another real estate agent during the duration of the contract.
The real estate agent takes on all responsibilities of selling the property – and the seller pays them the agreed-upon commission once the property sells.
The exclusive right to sell listing agreement is the one that is most commonly used and is the one you’ll most likely be signing with your realtor to sell your home.
Exclusive agency listing
The exclusive agency listing agreement is similar to the exclusive right to sell, except for one thing: if the seller finds a buyer, then their real estate agent is not owed a commission.
This is more common when a seller is thinking of taking the “for sale by owner” route but wants the security of having a real estate agent.
Most good listing agents won’t agree to this type of contract.
Why?
Because the exclusive agency listing opens up the possibility of them working for free.
Open listing
This type of listing agreement means exactly what it says – open.
The open listing agreement allows a seller to work with multiple real estate agents and still allows them to try and sell the property themselves.
Whichever agent brings a buyer is the one who gets paid a commission.
And if the seller finds a buyer, then they don’t pay the agent’s commission.
But good luck finding any real estate agent to agree to this type of agreement.
If you do, you’ll be the one stuck doing all of the work.
Net listing
A net listing is another agreement that isn’t common.
And it’s illegal in some states.
Here’s how a net listing agreement works:
1) The seller makes an agreement with their real estate agent for a price they’ll take for their house.
2) Anything over that amount is paid to the real estate agent.
What’s included in a listing agreement?
Okay, now for the fun part.
I’m going to walk you through the important sections of the listing agreement so that you have a complete understanding of what you’ll be signing.
Two things before we dive in:
1) Most of the listing agreement is template-based and is updated by a team of attorneys from the real estate association in your state.
2) The verbiage in listing agreements can vary depending on which state you live in, but they all have the same important information.
I’ll be using the exclusive right to sell listing agreement (most common) as we’re going through examples.
Expiration date
The time frame in the listing agreement is often referred to as the listing period.
There’s a start date and an expiration date that is included on the first page of the agreement.
List price
You and your realtor will have discussions about the list price before signing the contract.
The agreed-upon price will be stated in the listing agreement.
Commission
When a homeowner sells their property, they pay a commission to their real estate agent and the buyer’s agent.
Technically, the seller is paying these to the brokerages that the agents work for.
But here’s what most home sellers are not aware of:
They’re actually agreeing to pay the total commission to the real estate brokerage they’re listing with.
And their real estate brokerage is agreeing to pay a percentage of this to the buyer’s agent’s brokerage.
For example, let’s say the total commission is 5%, with 2.5% being paid to the listing agent’s broker and the other 2.5% being paid to the buyer’s agent’s broker.
The listing agreement will state that the 5% is being paid to the real estate brokerage the seller is hiring and that they’re authorizing their broker to pay 2.5% to a cooperating broker who represents the buyer.
You can see this here.
But there’s something you want to be aware of when going over this part of the contract with your listing agent.
More on this in a minute.
Protection period clause
The protection clause in a listing agreement protects the seller’s broker from not being paid a commission should they find a buyer for the property who:
- Viewed the property during the time period stated in the listing agreement.
- Bought the property after the expiration date.
For example, let’s say your listing agent showed your home to a potential buyer and their real estate agent.
But that buyer decided to put in an offer for your home after your listing agreement expired.
In this scenario, if you sell the property to that buyer, your real estate agent would be due a commission under these two circumstances:
- This happens during the time frame stated in the protection period.
- Your real estate agent gives you the names of the prospective buyers.
Here’s what this looks like in the listing agreement:
No agreements with other brokers
At the time of signing the listing agreement, the seller is acknowledging that they do not have a ratified agreement with another broker.
Items included in and excluded from the sale
Do you have any specific items that you would like to include or exclude from the sale of your property?
If so, you can state this in the listing agreement.
In most home sales, anything that is attached to the property will stay (e.g. bathroom fixtures) – so items that can be included or excluded will usually be things such as a refrigerator, washer/dryer, etc.
Permission to list on the MLS and presenting all offers
The MLS stands for “Multiple listing service”, which is a database of properties for sale that only real estate agents and brokers have access to.
If you want the maximum exposure for your home, then you’ll want your house listed on the MLS.
The listing agreement states the benefits of using the MLS and the impact that opting out of it could have when selling your property.
Broker’s and seller’s duties
There’s a section in the listing agreement that explains the duties of a seller and their real estate broker (and the agent).
The real estate agent is agreeing to exercise a reasonable effort and due diligence to sell the property.
And the seller is agreeing to act in good faith and to consider (not obligated) all offers presented to them.
Agency relationships
The agency relationship that is stated in a contract with a realtor when selling a house lists the responsibilities of the seller’s broker.
There’s usually a separate disclosure for this that comes attached to the listing agreement.
For states where dual agency (the broker represents both seller and buyer) is allowed (most do), the listing agreement also explains the agent’s responsibilities in this type of transaction.
Security, insurance, and showings
Although it’s a rare occurrence, there’s always a chance of something happening when a property is listed on the market.
The listing contract states that the seller is not holding their real estate broker liable should anything happen.
It also encourages the seller to purchase insurance that covers these circumstances (if homeowner’s insurance doesn’t already cover it).
Photos and internet advertising
This section of the listing agreement gives the seller’s real estate agent permission to include photos and online advertising as part of the marketing.
Both of these are key to maximizing the reach to potential buyers, but a seller must agree to this in the agreement.
Lockbox authorization
A lockbox allows access for buyer agents to show the property to their clients.
Most lockboxes are electronic and can only be opened through a smartphone app that only real estate agents have access to.
A listing agent can see which real estate agent opened the lockbox and when they closed it.
By acknowledging this section of the listing agreement, the seller is authorizing their real estate agent to put a lockbox on their property.
If there’s a specific reason why you might not want to have a lockbox, then there’s a box for you to check.
Permission to put a sign on your property
This is pretty straightforward.
A real estate agent needs the seller’s permission to put a for-sale sign on their property.
Don’t want a sign on your property?
There’s another box you can check in the listing agreement to state this.
Dispute resolution
Every type of real estate contract is going to have some legal language describing what happens if there’s a dispute between the parties involved.
It’s no different in a real estate listing agreement.
This part of the contract explains that the seller and their real estate broker will try and handle any disputes through mediation, before going to arbitration (usually where attorneys get involved).
This mostly revolves around any dispute about the commission being paid to the broker, which is a rare occurrence.
Ways real estate agents can use the listing agreement against you
Now that you know about the types of listing agreements and what’s included in the contract, you need to know how a real estate agent can use it for their benefit.
Some listing agents will intentionally hide or try to sneak in certain things when going over the contract with you.
The ones who do this are doing it to either secure or maximize their commission.
Remember, signing an exclusive right-to-sell listing agreement means you’re executing a legally binding contract that gives your agent the exclusive rights to sell your house.
So in the eyes of a real estate agent, once you sign the listing contract, that potential commission is only theirs to lose.
This is why some realtors are willing to risk their integrity when presenting the listing agreement to you.
Let’s discuss exactly how they might do this.
A longer-than-usual expiration date
Many realtors will default the expiration date in the contract to six months or longer.
And some will tell you that this is mandatory or that it’s required by their office.
It’s not.
The time frame in the listing agreement is negotiable.
Why would a real estate agent want a longer date?
Because it gives them more time to find a buyer for the property.
In other words, it gives them more security for them to earn a commission.
While you don’t want a time frame that will shortchange your real estate agent, you shouldn’t have one that will make them too comfortable.
This should be clearly defined before you sign the listing agreement.
You can do this by estimating the timeframes for the important steps when selling with a realtor.
- Getting ready to sell (usually a few weeks to a few months)
- Estimated time your home will be on the market (your agent should tell you)
- The time from when you accept the buyer’s offer until closing (~21-45 days)
Sum up the estimated time frames for each of these and then tack on a few weeks as a buffer.
Using this approach to arrive at the expiration date usually makes sense for most sellers and their agents.
Lopsided commissions
As we discussed earlier, when you sell your home, you pay a commission to your agent as well as the buyer’s agent.
Any real estate agent should clearly explain this before you sign the listing contract with them.
And they should specifically tell you how much is being paid to the buyer’s agent.
Many of them will.
But some realtors will intentionally forget to discuss this.
Why?
Because they may be including a lower than average percentage to the buyer’s agent.
This means they’re taking a higher percentage for themselves.
It would look something like this on the listing agreement:
In most areas, the average percentage paid to the buyer’s agent is 2.5-3%, with 2.5% being more common nowadays.
Paying lower than this can hurt the sale of your property because you’ll run the risk of that buyer’s agent discouraging their buyers from considering your home.
So when signing the listing agreement, be sure to look at these two commission percentages:
- Total commission
- The amount being offered to the buyer’s agent
If the difference between the two is higher than the amount being offered to the buyer’s agent, then that agent may very well be prioritizing their money over yours.
Opting out of the MLS without your permission
The default language in the listing agreement states that the seller is agreeing to list their home on the MLS.
But there’s a box that can be checked stating you’re opting out of this.
It will look something like this:
If you see this, there’s a good chance that your real estate agent is intentionally trying to limit the exposure of your home.
Why would they do this?
To increase their chances of finding a buyer who:
- They can also represent in the transaction.
- Refer to another agent who they know really well.
This means they would earn more commission while minimizing the number of potential buyers who know that your home is for sale.
This can easily result in a sale price that is much lower than it should be.
Not giving you the option to cancel
Listing agreements do not include a cancelation clause.
If you want to cancel the contract with your real estate agent, you’ll need to have a conversation with them.
But many real estate agents won’t allow you to or will make it extremely difficult.
This gives real estate agents a sense of security.
They know they’re going to get paid as long as your house sells before the expiration date listed in the contract.
This is why many agents will say whatever is needed to get you to sign the listing agreement.
So before you sign, ask your real estate agent to add a cancellation clause.
If you’re successful, you’ll boost your chances of selling with someone who will make your sale a top priority.
This is why we make this a requirement when an agent applies to become a partner agent in our network.
Conclusion
Knowing what you’re agreeing to before signing the listing agreement is critical.
It can prevent a bad experience and solidify the choice you make when going through the process of hiring a realtor to sell your house.
Before signing a contract with an agent, be sure you’re fully aware of:
- The type of listing agreement you’re signing
- What the listing agreement includes
- Ways that the real estate agent could use the listing agreement for their benefit
Understand these 3 essential things before signing the agreement and start your home selling journey with an agent who will be motivated to make your sale a top priority.